The Trends and Do’s and Don’ts of Subscription Boxes

September 6, 2023
By Phil Lempert, SupermarketGuru, Consumer Trend Tracker, Food Trends Editor, NBC’s Today, and Author

Subscription boxes have emerged as a dynamic and innovative way for consumers to experience curated products and services delivered to their doorsteps regularly. These subscription-based business models have gained immense popularity across various industries, from beauty and fashion to food and lifestyle.

Subscription boxes have taken the e-commerce industry by storm. The subscription box industry had been witnessing robust growth prior to 2021. In 2019, the global subscription box market was valued at around $7.5 billion, according to data from McKinsey & Company. The industry had been experiencing a compound annual growth rate (CAGR) of over 15% for several years leading up to 2021.

Various factors contributed to this growth, including increased consumer interest in curated experiences, convenience, and the appeal of discovering new products without the need for traditional shopping; and, of course, not being able (or having the desire) to shop in-person during the COVID pandemic. The industry’s success spanned across sectors such as beauty, fashion, food and beverage, fitness, and more.

There are two types of subscription boxes. Traditional subscription boxes often operate on a month-to-month basis, allowing customers to easily cancel or pause their subscriptions. Membership-based subscription boxes typically require subscribers to commit to a longer-term membership, such as an annual plan.

Subscription boxes with membership models have revolutionized the traditional shopping experience. These models offer customers the convenience of receiving carefully curated products on a regular basis, tailored to their preferences and needs. The membership concept creates a sense of exclusivity and engagement, fostering a deeper connection between brands and consumers.

Companies offering subscription box memberships often provide tiered options, allowing customers to choose from different subscription levels based on their budget and preferences, accommodating a broad audience whether they are consumers who seek premium experiences or are budget-conscious. This tiered approach not only maximizes customer retention but also provides an avenue for upselling premium offerings and offering various benefits, encouraging subscribers to upgrade their plans for enhanced experiences and rewards.

One of the key advantages of membership models is the predictable revenue stream they generate for businesses. As subscribers commit to paying a recurring fee, companies can accurately forecast their revenue and plan accordingly. This stability enables them to invest in sourcing high-quality products, enhancing customer experiences, and scaling their operations. Membership-based subscription boxes often boast higher customer retention rates compared to their month-to-month counterparts and are designed to build a relationship with the subscriber.

Financially, subscription box companies with membership models have been on a remarkable growth trajectory. The recurring revenue generated from subscription fees has allowed these businesses to expand their offerings, invest in marketing efforts, and improve the overall customer experience.

Many subscription box companies have diversified their offerings to cater to a wide range of interests and preferences. One key success factor is personalization by tailoring products to match individual preferences set by the member, which enhances the overall customer experience. By leveraging data analytics and customer feedback, subscription box companies can deliver items that resonate with their members, reduces returns and fosters loyalty.

Subscription box companies have also been at the forefront of using social media outlets to leverage brand partnerships. By collaborating with established brands to put in their boxes and partner with influencers, these subscription plans can significantly boost the perceived value of subscription boxes. These partnerships attract new subscribers and provide opportunities for cross-promotion and co-branding.

The major issue for subscription box companies is the same as in-store retailers experience: managing customer churn. Churn rate, also known in this industry as subscription attrition, refers to the rate at which subscribers cancel their memberships. High churn rates can have a detrimental impact on a business’s financial stability and long-term success, which is why those in the subscription box business must make them a priority to manage.

Several factors contribute to churn in the subscription box industry. Consumers today are inundated with choice with a multitude of subscription services available. This can lead to subscription fatigue, causing individuals to cancel services they no longer find compelling, underscoring the needs of these services to constantly be changing and improving their product selection. Another major issue is if the products and experiences delivered do not match subscribers’ expectations; having accurate descriptions and photos of the products is a must. I just canceled a quarterly subscription box membership that I had for over six years (from a major men’s fashion magazine) as the item selection in the box became redundant from quarter to quarter, the box itself went from a classy printed box to a rather ordinary presentation in kraft, and the amount of items actually decreased. Companies must continuously strive to exceed customer expectations to reduce churn. Consumer preferences change with trends and evolve over time; these companies need to adapt and evolve their offerings to keep subscribers engaged.

Dollar Shave Club is one of the best-known subscription box companies that offered affordable razor blades and grooming products and was acquired by Unilever back in 2016 for $1 billion. Ipsy is a beauty subscription business that acquired BoxyCharm, which specializes in personalized makeup and beauty products. Snack Crate delivers snacks from different counties every month, offering their subscribers surprise finds. And of course, Chewy specializes in pet products and offers a wide selection based on personalization of species, breeds and specific needs — and terrific television ads. Chewy became the leader in that category with revenue of almost $11 billion a year as of July 2023, with earnings over the next few years expected to double, according to Yahoo! Finance, indicating a very optimistic future.

Then there are others like Birchbox, Blue Apron, Nerd Block, Munchery, Candy Club, OwlCrate Jr., Loot Crate, Stick Fix, Trunk Club by Nordstrom, Hello Fresh, and Freshly, who have struggled or gone out of business.

To thrive in this competitive landscape, in my opinion, subscription box businesses must offer exceptional customer service, personalized recommendations, and a seamless user interface that can significantly reduce churn rates. They need to stay relevant with continuously evolving product offerings which align with changing trends and consumer preferences. And most important, they need to reward subscribers with loyalty programs, rewards, and referral incentives to keep them engaged.

The subscription box industry with membership models is poised for continued growth and innovation — if you pay close attention to the customer.